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All about Buy to Let (BTL) Mortgages
Can I get a BTL Mortgage?
A buy to let (BTL) mortgage is needed if you plan to purchase a property to rent out for profit. If you are considering a BTL mortgage, you will be subjected to additional acceptance criteria than with a residential mortgage application.
First and foremost, most lenders will require that you own a residential property, either outright or through a residential mortgage. You will normally need a salary of at least £25,000 and a strong credit rating.
In most cases, the mortgage will need to be repaid in full before you reach age 70.
How do BTL Mortgages Work?
BTL mortgages work in the same way as a traditional mortgage, although most will be interest only, rather than repayment.
There are usually higher mortgage rates, higher fees and a minimum requirement of 25% deposit.
Unless you plan to let your property to close family members, a BTL mortgage is not regulated by the Financial Conduct Authority (FCA).
The main difference with a BTL mortgage is how the lender calculates the loan. Rather than basing this on your personal income, the lender uses potential rental yield (income from the property) to establish a loan amount. They may additionally carry out stress tests based on personal affordability, however.
How much can you borrow on a BTL Mortgage?
As this is not based heavily on your affordability criteria, the loan will depend on your lender and the potential income from your chosen property. Most lenders will require the rental yield from your property to be at least 25% more than your monthly mortgage payments.
Planning for when there is no rent coming in
Whilst you can make a stable income from property rental, it’s important to plan for every eventuality. There are a range of circumstances, from renovation through to difficult tenants that may mean your property is vacant and/or that you are not receiving a monthly income.
Some home insurance providers offer high end rental protection policies. These can often cover you for periods of property vacancy.
Don’t rely on selling your property to repay the mortgage
As BTL mortgages are predominantly interest only, you should keep in mind how you’ll pay off the final lump sum. Many buy to let landlords sell their rental property in order to pay off the lump sum, however, this is not always possible.
You should always consider that the property might not sell in time, or raise enough to cover the lump sum. Setting aside some of the rental income as savings is a good way to overcome this potential situation.
Buy to Let Tax implications and Advantages
There are both tax implications involved in taking on a BTL property. A 3% higher stamp duty is charged on BTL properties. You are also liable for capital gains tax if you decide to sell the property.
In terms of income tax, you will need to do a self assessment on any rental income gained. Income tax is also charged on any profit you should make from the sale of your property. Both of these can have an affect on your tax band, so this is worth considering.
You do have the advantage of being able to reclaim some of the costs associated with being a landlord, on your tax return, however. You are entitled to tax relief on; property repairs and renovations, letting agency or property management fees as well as council tax and other utility bills (should you pay these yourself).
Where can you get a BTL Mortgage from?
Both high street lenders and specialist mortgage providers offer buy to let mortgages. Finding the right lender, however, can be time consuming and difficult.
Particularly if you are new to buy to let properties, it’s a good idea to speak to a mortgage adviser for some advice, prior to your application.
How can a Mortgage Broker help?
A mortgage broker can consider the acceptance criteria of a wide range of lenders against your personal situation. This allows them to find those lenders that are most likely to accept your application.
Having a whole market view also gives mortgage brokers the edge in terms of mortgage deals. They may be able to find you a better deal than you can get yourself.
Don’t forget, failed mortgage applications are not only disappointing and a waste of time, they also affect your credit report. Mortgage brokers can help you prevent these mistakes, saving your time, money and your credit score!
A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured on it.